Helena Rubinstein used guile, brilliant branding, and more than a few falsehoods to lift cosmetics from an accessory for prostitutes to a desired luxury item. Geoffrey Jones reveals her history.
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The most comprehensive information windows that firms provide to the markets—in the form of their mandated annual and quarterly filings—have changed dramatically over time, becoming significantly longer and more complex. When firms break from their routine phrasing and content, this action contains rich information for future firm stock returns and outcomes.

Mutual fund managers solve their complex “search problem” for superior investable returns by tracking—and trading—on very particular sets of firms and insiders. These sets are chosen strategically and remain very persistent over time, as does the outperformance these insiders’ trades afford to the given fund managers.

This paper documents systematic evidence that firms engage in specialized, locally targeted advertising when taken to a court trial in a given location. Policymakers should consider what impact such targeted advertising is having—and whether it is a desired impact—on juries and the judicial process more generally.

New research by Lauren Cohen and Umit Gurun finds that when some companies are sued, they put their advertising dollars to work in unusual ways to influence local juries. Meet 'TiVo,' the championship steer.
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Why are workforces heavily unionized in some states but not in others? Lauren H. Cohen, Christopher J. Malloy, and Quoc Nguyen find the answer in the droughts of the 1930s.
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In their course Stock Pitching, Lauren Cohen and Christopher Malloy teach students everything from how to pick stocks using their own insights to pitching them to investment colleagues.
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Clearly defined property rights are essential for well-functioning markets. In the case of intellectual property (IP), however, property rights are complex to define; unlike ownership of physical assets, the space of ideas is difficult to clearly delineate. A solution employed by the United States and many other countries is the patent-a property right allowing an idea's owner sole commercialization rights for a period of time. A new organizational form, the non-practicing entity (NPE), has recently emerged as a major driver of IP litigation. NPEs amass patents not for the sake of producing commercial products, but in order to prosecute infringement on their patent portfolios. In this paper the authors provide the first large-sample evidence on the litigation behavior of NPEs. They show precisely which corporations NPEs target, when NPEs litigate, and how NPE litigation impacts the innovative activity of targeted firms. NPEs behave, on average, as patent trolls. This means that NPEs target firms that are flush with cash or that have just had positive cash shocks. NPEs even target conglomerate firms that earn their cash from segments having nothing to do with their allegedly infringing patents. The stakes of how to organize intellectual property disputes are massive. If the United States becomes a less desirable place to innovate because NPEs are left unchecked, innovation and human capital, and the returns to that innovation and human capital, will likely flee overseas. But innovators will also leave if they feel they are not are protected from large, well-funded interests that might infringe on innovative capital without recourse. Key concepts include: The rise of non-practicing entities (NPEs) has sparked a debate regarding their value and their impact on innovation. This study provides evidence that NPEs do not protect innovators from large interests in the intellectual property space. On average, NPEs behave as patent trolls that chase cash and negatively impact future innovation. Policy should be to more carefully limit the power of NPEs or, in the framework of the authors' model, increase the cost of bringing suit against commercializers of innovative ideas.
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Data from thousands of Wall Street earnings conference calls suggests that many companies hide bad performance news by calling only on positive analysts, according to new research by Lauren Cohen and Christopher Malloy.
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Given the current regulatory environment in the United States (and increasingly globally) of level playing-field information laws, firms can only communicate information in public exchanges. However, even in these highly regulated venues, there are subtle choices that firms make that reveal differential amounts of information to the market. In this paper the authors explore a subtle but economically important way in which firms shape their information environments, namely through their specific organization and choreographing of earnings conference calls. The analysis rests on a simple premise: firms understand they have an information advantage and the ability to be strategic in its release. The key finding is that firms that manipulate their conference calls by calling on those analysts with the most optimistic views on the firm appear to be hiding bad news, which ultimately leaks out in the future. Specifically, the authors show that "casting" firms experience higher contemporaneous returns on the (manipulated) call in question, but negative returns in the future. These negative future returns are concentrated around future calls where they stop this casting behavior, and hence allow negative information to be revealed to the market. Key concepts include: The paper shows new evidence on a channel through which firms influence information disclosure even in level-playing-field information environments. The pattern of firms appearing to choreograph information exchanges directly prior to the revelation of negative news is systematic across the universe of firms.
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Firms that correlate their international trading activity with the local ethnic community significantly outperform those that don't, according to new research by Lauren H. Cohen, Christopher J. Malloy, and Umit G. Gurun.
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How do firms differentially navigate the global marketplace to buy and sell goods? The answer is critical to identifying which firms will ultimately succeed, and how investors should allocate capital amongst these firms. This paper analyzes the strategic entry choices of firms seeking to expand their businesses to overseas markets. Using customs and port authority data detailing the international shipments of all U.S. publicly-traded firms, the authors show that firms import and export significantly more with countries that have a strong resident population near the firm headquarters. In addition, by analyzing the formation of World War II Japanese internment camps in order to study external shocks to local ethnic populations, the authors also identify a causal link between local networks and firm trade. However, capital markets and sell-side analysts have difficulty deciphering even these observable channels, so make significant mistakes in assessing the positive impact of these links. Findings overall show a surprisingly large impact of immigrants' economic role as conduits of information for firms in their new countries. This research provides new evidence on the economic impact of immigration and ethnic diversity in the United States. Key concepts include: Firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarters. Firms that exploit local networks in their international trade decisions experience significant increases in future sales growth and profitability. Strategic importers and exporters outperform other importers and exporters by 5%-7% per year in risk-adjusted returns. Although it is possible to predict which trade links, on average, are valuable for firms (using simple measures of connected population that are publicly available), the market seems to ignore this information. The increased value of strategic traders is also missed by analysts. Analysts are significantly less accurate in their earnings forecasts on these firms, with these firms having significantly more positive earnings surprises. One channel of the information network is through board members. A connected local population predicts more board members from that same country, and significantly higher returns for those firms that exploit connected board members in their trade decisions.
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This paper examines the importance of firms' relationships with their legal and political environment, and the actors who form this environment. Governments pass laws that affect firms' competitive landscape, products, labor force, and capital, both directly and indirectly. And yet, it remains difficult to determine which firms any given piece of legislation will affect, and how it will affect them. By observing the actions of legislators whose constituents are the affected firms, the authors gather insights into the likely impact of government legislation on firms. Specifically, the authors demonstrate that legislation has a simple yet previously undetected impact on firm prices. Key concepts include: The measurement of which firms are materially impacted by a given bill is the crux of this paper. Focusing attention on the legislators who have the largest vested interests in firms affected by a given piece of legislation gives a powerful lens into the impact of that legislation on the firms in question. Legislators who have a direct interest in firms often vote quite differently than other, uninterested legislators on legislation that impacts the firms in question. A long-short portfolio based on these legislators' views earns abnormal returns of over 90 basis points per month following the passage of legislation. These returns show no run-up prior to bill passage and no announcement effect directly at bill passage. The returns continue to accrue past the month following passage. The more complex the legislation, the more difficulty the market has in assessing the impact of these bills. The effect the authors document has been becoming stronger over time.
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Associate Professors Lauren H. Cohen and Christopher J. Malloy study how social connections affect important decisions and, ultimately, how those connections help shape the economy. Their research shows that it's possible to make better stock picks simply by knowing whether two industry players went to the same college or university. What's more, knowing whether two congressional members share an alma mater can help predict the outcome of pending legislation on the Senate floor.
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Research supports the old adage that says it's not what you know; it's whom you know--especially when it comes to the voting behavior of US politicians. In a National Bureau of Economic Research working paper, Harvard Business School professors Lauren Cohen and Christopher Malloy study the congressional voting record from 1989 to 2008. They show that personal connections among Congress members reliably affect how they will vote on pending legislation. Key concepts include: US senators are more likely to vote in favor of bills when other senators who graduated from the same university also vote in favor of these bills. Social ties between Congress members and executives of firms in their home states have a direct impact on legislator behavior. Senate voting behavior also is affected by who sits near whom on the Senate chamber floor.
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Price setters and regulators face a difficult challenge in trying to understand the stock trading activity of corporate insiders, especially when it comes to figuring out whether the activity is a good indicator of the firm's financial future. This National Bureau of Economic Research paper discusses how to distinguish "routine" trades (which predict virtually no information about a firm's financial future) from "opportunistic" trades (which contain a great deal of predictive power). Research was conducted by Harvard Business School professors Lauren Cohen and Christopher Malloy and Lukasz Pomorski of the University of Toronto. Key concepts include: Routine traders, whose trades make up some 55 percent of insider trades (over half of the universe), are those with a pattern of placing a trade in the same calendar month for at least a few years in a row. Opportunistic traders are those insiders for whom there is no discernible pattern in the past timing of their trades. Focusing solely on opportunistic trading activity allows analysts to weed out useless signals and identify those trades that will likely predict future firm returns and events. More than half of the improvement in this predictive power comes from the superior performance of opportunistic sells relative to routine sells.
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Research from Harvard Business School suggests that federal spending in states appears to cause local businesses to cut back rather than grow. A conversation with Joshua Coval.
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School connections are an important yet underexplored way in which private information is revealed in prices in financial markets. As HBS professor Lauren H. Cohen and colleagues discovered, school ties between equity analysts and top management of public companies led analysts to earn returns of up to 5.4 percent on their stock recommendations. Cohen explains more in our Q&A.
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